U>.   £\      t*-K. 


Vo 


TREASURY  DEPARTMENT 
UNITED  STATES  INTERNAL  REVENUE 


INCOME  TAX  PRIMER 

FOR 


FARMERS 


PREPARED  BY  THE  BUREAU  OF  INTERNAL  REVENUE 

FOR  THE  INFORMATION  AND  ASSISTANCE 

OF  TAXPAYERS 


(PRELIMINARY  EDITION) 


WASHINGTON 
GOVERNMENT  PRINTING  OFFICE 


50 


INCOME   TAX   PRIMER   FOR   FARMERS. 


i;i:ti;kns. 


1.  Who  is  a  farmer? 

The  term  "  farmer  "  as  used  in  this  primer  embraces  per- 
sons operating  stock,  dairy,  poultry,  fruit,  or  truck  farms, 
plantations,  ranches,  or  any  land  used  for  fruit  raising  or 
agricultural  purposes. 

2.  I  am  a  farmer.     Am  I  required  to  make  a  personal  income  tax 

return  for  1918? 

Yes;  if  your  net  income  equals  or  exceeds  the  personal  ex- 
emption to  which  you  are  entitled,  or  in  any  event  if  your  net 
income  equals  or  exceeds  $2,000. 

3.  To  what  personal  exemptions  am  I  entitled? 

If  you  are  a  single  person  you  are  entitled  to  an  exemption 
of  $1,000;  if  you  are  married  and  have  been  living  with  your 
wife  or  husband  during  the  entire  year  or  have  been  the  head 
of  a  family  during  the  entire  year  you  are  entitled  to  an  addi- 
tional exemption  of  $1,000.  You  are  also  entitled  to  a  further 
exemption,  whether  single  or  married  or  the  head  of  a 
family,  of  $200  for  each  person  (other  than  husband  or  wife) 
dependent  upon  and  receiving  his  chief  support  during  the 
year  from  you,  if  such  dependent  person  is  under  18  years 
of  age,  or,  regardless  of  age,  is  incapable  of  self-support  be- 
cause mentally  or  physically  defective.  If  you  are  entitled 
to  any  of  the  foregoing  exemptions  during  a  part  of  the 
year  only,  you  are  entitled  to  as  many  twelfths  of  the  exemp- 
tions stated  as  there  were  months  in  such  part  of  the  year  to 
which  you  were  entitled  to  the  exemption.  Any  part  of  a 
month  may  be  counted  as  a  full  month. 

4.  On  .June  15  my  wife  died,  since  which  time  I  have  been  board- 

ing.   To  what  exemption  am  I  entitled? 

To  an  exemption  of  $1,000,  plus  $500,  since  you  were 
married  for  one-half  of  the  year. 

5.  On  March  31,  1918,  my  wife  died,  since  which  time  I  have  kept 

my  home  with  my  three  small  children.     To  what  exemption 
am  I  entitled7 

To  an  exemption  of  $2,000  as  head  of  a  family,  plus  $600 
for  the  children.  If  you  had  not  had  any  children  dependent 
upon  you  and  had  not  kept  your  home  you  would  have  been 
entitled  to  an  exemption  of  $1,000  plus  $850  for  the  time  your 
wi  fe  lived  with  you,  or  a  fcol  al  of  $1,250. 
G.  On  October  10,  1918,  I  married  a  widow  with  one  dependent 
child  3  years  old.  both  of  whom  1  have  supported  since  mar- 
riage.   To  what  exemption  am  1  entitled) 

To  an  exemption  of  $1,000  for  yourself,  an  additional 
amount  of  $250  for  your  wife,  and  $50  for  the  child:  total, 
$1,300. 


,j.  INCOME   TAX   PRIMER   FOR   FARMERS. 

7.  Who  is  entitled  to  be  considered  the  "  head  of  a  family  "  ? 

A  person  who  is  the  chief  support  of  one  or  more  persons 
living  in  his  own  household,  who  are  closely  related  to  him  (or 
her)  by  blood,  marriage,  or  adoption. 

8.  What  is  meant  by  the  taxable  year  1918? 

The  calendar  year  1918  or  any  fiscal  year  ending  during  the 
•    calendar  year  1918. 

9.  What  does  the  term  fiscal  year  mean? 

An  accounting  period  of  12  months  ending  on  the  last  day 
of  any  month  other  than  December. 

10.  Upon  what  period  of  time  shall  my  1918  income-tax  return  be 

based  ? 

Upon  the  calendar  year  1918. 

11.  I  have  been  computing  my  net  income  upon  a  calendar-year  basis 

as  required  of  individuals  by  the  income-tax  laws  in  force 
prior  to  the  revenue  act  of  1918.  May  I  change  the  basis  of 
computing  my  net  income  to  that  of  a  fiscal  year? 

Yes.  If  you  have  actually  been  keeping  your  books  on  the 
basis  of  an  accounting  period  of  12  months  ending  on  the  last 
day  of  any  month  in  the  year  1918  other  than  December,  you 
may  make  a  return  for  such  accounting  period.  The  return 
should  be  made  in  the  same  way  as  a  return  for  the  calendar 
year  1918,  and  should  include  your  entire  income  for  the  ac- 
counting period  of  12  months  for  which  the  return  is  made. 
An  adjustment  will  be  made  for  the  income  which  was  also 
included  in  the  return  for  the  calendar  year  1917.  If  you 
have  not  been  keeping  your  books  on  the  basis  of  an  accounting 
period  ending  in  a  month  other  than  December,  you  must 
make  your  return  for  the  calendar  year  1918.  The  revenue 
act  of  1918  and  the  regulations  provide  a  method  for  making 
a  change  in  future  years,  but  no  change  can  be  made  with  re- 
spect to  the  return  for  the  year  1918. 

12.  My  principal  crop  is  tobacco.     I  keep  books  of  account  which 

accurately  show  my  true  gains  and  profits,  take  annual  in- 
ventories and  close  my  books  on  March  31.  My  tax  return  for 
1917  covered  the  calendar  year  1917.  Upon  what  period  shall 
I  make  a  return  for  1918? 

Since  your  normal  accounting  period  is  the  fiscal  year  end- 
ing March  31,  you  should  make  a  return  showing  your  true 
net  income  from  April  1,  1917.  to  March  31,  1918.  An  adjust- 
ment will  be  made  for  the  income  which  was  also  included  in 
the  return  for  the  calendar  year  1917.  This  will  serve  to 
establish  your  fiscal  year  as  ending  on  March  31.  This  return 
should  be  filed  with  the  collector  on  or  before  March  15,  1919. 
Section  227  (a)  of  the  revenue  act  of  1918  requires  that  re- 
turns made  on  the  basis  of  a  fiscal  year  shall  be  filed  "on  or 
before  the  L5th  day  of  the  third  month  following  the  close 
of  the  fiscal  year.      Therefore,  on  or  before  June  15,  1919, 

you  si Id  file  a  return  of  net  income  covering  your  fiscal  year 

ending  March  31,  1919. 

13.  Where  should  my  persona]  return  for  the  year  1918  be  filed? 

Section  227  (b)  of  the  revenue  act  of  1918  provides  that 
your  return  shall  be  filed  with  the  collector  of  internal  revenue 


INCOME   TAX   PRIMER   FOR   FARMERS.  5 

for  the  district  in  which  you  have  your  legal  residence  or 
principal  place  of  business.  If  your  legal  residence  is  located 
in  one  collection  district  and  your  principal  place  of  business 
in  another,  it  is  optional  with  which  collector  your  return 
shall  be  filed;  but  for  administrative  reasons  the  Commissioner 
of  Internal  Revenue  desires  that  it  be  filed  with  the  collector 
of  the  district  in  which  your  legal  residence  is  located. 

14.  When  may  my  1918  return  be  filed  with  a  collector  of  internal 

revenue  '. 

On  any  day  after  December  31,  1918,  but  not  later  than 
March  15,  1919. 

15.  Will  failure  to  file  my  return  within  the  time  prescribed  by  law 

render  me  liable  to  any  penalty  ? 

He  would  become  liable,  under  the  provisions  of  section  253 
of  the  revenue  act  of  1918,  to  a  fine  of  not  to  exceed  $10,000, 
or  to  one  year's  imprisonment  or  both,  in  the  discretion  of  the 
court,  and  to  the  costs  of  prosecution,  and  if  he  made  an  under- 
statement of  the  tax  which  was  false  with  intent  to  evade  the 
tax,  to  a  penalty  of  50  per  cent  of  the  amount  of  the  deficiency. 
If  he  willfully  made  a  return  which  was  false  or  fraudulent  in 
other  respects  he  would,  under  section  3176  of  the  Revised 
Statutes,  be  liable  to  an  additional  penalty  of  50  per  cent  of  the 
amount  of  the  entire  tax. 

16.  May  an  extension  of  time  beyond  March  15,  1919,  be  obtained 

for  the  filing  of  my  1918  return? 

Yes.  If,  on  account  of  illness  or  absence  from  home,  you 
are  unable  to  file  your  return  within  the  time  prescribed  by 
law,  }Tou  may  obtain  an  extension  of  30  days  if  a  request 
therefor  is  made  to  the  collector  of  your  district  within  the 
period  covered  by  the  extension  asked  for.  In  this  request  you 
must  state  the  reason  why  the  return  can  not  be  filed  within  the 
time  prescribed  by  law. 

17.  Would   a   personal   return   made  by   an   agent,   for  and   in   my 

behalf,  be  accepted  '. 

If,  by  reason  of  illness,  absence,  or  nonresidence  a  taxpayer 
is  unable  personally  to  make  his  return  he  may  appoint  an 
agent  to  act  for  him  and  the  return  executed  by  the  agent 
will  be  accepted  if  he  makes  affidavit  that  he  has  sufficient 
knowledge  to  make  a  complete  and  accurate  return  for  his 
principal.  Such  ageni  assumes  responsibility  for  making  the 
return  properly,  and  the  penalties  provided  for  a  delinquent, 
erroneous,  false,  or  fraudulent  return  are  applicable  to  him. 

18.  May  a  husband  and  wife  living  together  make  separate  returns? 

Yes.  They  should  in  every  case  make  separate  returns  where 
the  wife  has  a  separate  income  and  the  aggregate  net  income 
of  both  husband  and  wife  is  $5,000  or  over.  Where  the  com- 
bined net  income  in  excess  of  credits  (see  question  101)  is  in 
excess  of  $4,000  separate  returns  must  be  made  in  order  that 
there  shall  not  be  an  overassessment  of  tax.  Husband  and 
wife  living  together  are  entitled  to  a  personal  exemption  of 
not  to  exceed  $2,000  against  their  aggregate  net  income.  If 
separate  returns  are  made  the  personal  exemption  of  $2,000 
may  be  taken  by  either  or  divided  between  them. 


6  INCOME    TAX   PRIMER   FOR   FARMERS. 

19.  If  a  husband  and  wife  make  a  joint  return  showing  net  income 

in  excess  of  $6,000  is  the  surtax  upon  that  return  based  upon 
the  aggregate  amount  of  net   income  shown? 

If  a  statement  is  attached  to  the  return  showing  the  amount 
of  the  wife's  net  income  included  in  the  return  the  surtax  will 
be  assessed  only  against  the  separate  income  of  each  in  excess 
of  $5,000.  But,  as  indicated  in  the  answer  to  question  18, 
separate  returns  should  be  made  where  the  net  income  of  both 
husband  and  wife  is  in  excess  of  $5,000. 

20.  Where  can  I  get  a  blank  form  upon  which  to  make  my  return? 

From  the  collector  of  internal  revenue  for  your  district. 
The  collector  will  endeavor  to  have  such  forms  sent  to  you, 
but  failure  to  receive  one  will  not  excuse  you  from  making  a 
return.  If  you  do  not  receive  one,  it  is  your  duty  to  request 
the  collector  to  furnish  you  with  a  blank  form. 

RATE  OF  TAX. 

21.  What  personal  income  taxes  are  imposed  upon  income  received 

during  the  calendar  year  1918? 

The  normal  income  tax  on  the  income  of  every  individual 
citizen  or  resident  of  the  United  States  is  at  the  rate  of  6  per 
cent  upon  the  first  $4,000  of  the  net  income  in  excess  of  credits 
allowed  (see  question  101)  and  12  per  cent  upon  the  exce-s 
over  that  amount.  A  person  receiving  a  net  income  in  excess 
of  $5,000  is  liable  to  a  surtax  of  1  per  cent  upon  income  from 
$5,000  to  $6,000;  2  per  cent  upon  income  from  $6,000  to  $8,000; 
3  per  cent  upon  income  from  $8,000  to  $10,000,  etc.  Assuming 
that  a  man's  net  income  for  1918  wras  $9,000  and  that  he  was 
entitled  to  $2,800  credits,  his  tax  would  be  computed  as  fol- 
lows: 

NORMAL   TAX. 

Income  from  $2,800  to  $6,800,  at  6  per  cent $240 

Income  from  .$<>.NO0  to  $9,000,  at  12  per  cent 264 

SURTAX. 

Income  from  $5,000  to  $6*000,  ;it   1  per  cent 10 

Income  from  ^C.iM)  to  $8,000,  at  2  per  cent 40 

Income  from  $8,000  to  $9,000,  at  3  per  cent 30 


'!• 


Total    tax 584 

NET   INCOME. 

22.  What  is  meant  by  the  term  "net  income"? 

Net  income  means  your  total  gross  income,  not  including 
income  exempt  from  the  tax  by  law.  less  the  general  deductions 
allowed  by  law. 

EXEMPT    INCOME. 

23.  What  income  of  an  individual  is  exempt  from  income  tax? 

( <i )  The  proceeds  of  life  insurance  policies  paid  upon  the 
death  of  the  insured  to  individual  beneficiaries  or  to  the  estate 
of  the  insured ; 


INCOME   TAX    PRIMER    FOR    FARMERS.  7 

(b)  The  amount  received  by  the  insured  as  a  return  of 
premium  or  premiums  paid  by  him  under  life  insurance,  en- 
dowment, or  annuity  contracts,  either  during  the  term  or  at 
the  maturity  of  the  term  mentioned  in  the  contract  or  upon 
surrender  of  the  contract; 

(c)  The  value  of  the  property  acquired  by  gift,  bequest, 
devise,  or  descent  (but  the  income  from  such  property  shall 
be  included  in  gross  income)  ; 

{d)  Interest  upon  (1)  the  obligations  of  a  State.  Territory, 
or  any  political  subdivision  thereof,  or  the  District  of  Colum- 
bia; or  (2)  securities  issued  under  the  provisions  of  the  Fed- 
eral farm  loan  act  of  July  17,  1916;  or  (3)  the  obligations  of 
the  United  States  or  its  possessions,  except  as  follows:  In  the 
case  of  obligations  of  the  United  States  issued  after  September 
1.  1917.  the  interest  shall  be  exempt  only  if  and  to  the  extent 
provided  in  the. respective  acts  authorizing  the  issue  thereof  as 
amended  and  supplemented,  and  shall  be  excluded  from  gross 
income  only  if  and  to  the  extent  it  is  wholly  exempt  from 
taxation  to  the  taxpayer; 

(e)  Amounts  received,  through  accident  or  health  insurance 
or  under  workmen's  compensation  acts,  as  compensation  for 
personal  injuries  or  sickness,  plus  the  amount  of  any  damages 
received  whether  by  suit  or  agreement  on  account  of  such  in- 
juries or  sickness; 

(/)  So  much  of  the  amount  received  during  the  present 
war  by  a  person  in  the  military  or  naval  forces  of  the  United 
States  as  salary  or  compensation  in  any  form  from  the  United 
States  for  active  services  in  such  forces,  as  does  not  exceed 
$3,500. 

24.  Am  I  required  to  make  any  return  of  income  wholly  exempt  from 

income  tax? 

The  law  requires  that  every  person  owning  any  of  the  obli- 
gations, securities,  or  bonds  enumerated  in  clauses  (1).  (2), 
and  (3)  of  paragraph  (d)  above  shall  submit  a  statement 
showing  the  number  and  amount  of  such  obligations,  securi- 
ties, and  bonds  owned  by  him  and  the  income  received  there 
from.  There  is  a  place  on  the  return  form  for  showing  such 
information. 

25.  To  what  extent  is  interest  received  upon   Liberty  bonds  exempt 

from  income  tax? 

(k)  All  interest  received  upon  Liberty  bonds  is  exempt 
from  norma]  tax. 

(b)  In  any  event,  interest  upon  the  :>'  per  cent  Liberty 
bonds  of  the  first  series  is  exempt  from  both  normal  tax  and 
surtax. 

(c)  In  addition,  a  person  is  entitled  to  exemption  from  lax 
upon  interest  received  on  $5,000  aggregate  amount  of  bonds 
and  war-savings  certificates. 

('/)  If  one  originally  subscribed  for  Liberty  bonds  of  the 
fourth  series,  he  is  also  entitled  to  an  exemption  from  t;tx  on 
interest  received  upon  bonds  of  the  previous  issues,  not  to 
exceed  one  and  one-half  times  the  amount  of  the  fourth  Lib- 
city  loan  bonds,  originally  subscribed  for  and  still  owned,  not 
to  exceed  in  the  aggregate  $45,000. 


8  INCOME   TAX   PRIMER   FOR   FARMERS. 

(e)  The  interest  received  on  not  exceeding  $30,000  principal 
amount  of  Liberty  bonds  into  which  first  Liberty  bonds  may 
have  been  converted  in  the  exercise  of  any  privilege  arising  as 
a  consequence  of  the  issue  of  the  fourth  Liberty  bonds  is 
exempt. 

(/)  The  interest  received  on  not  exceeding  $30,000  principal 
amount  of  Liberty  bonds  of  the  fourth  issue  is  exempt. 

The  interest  upon  Liberty  bonds  which  is  entirely  exempt 
from  income  tax,  as  defined  above,  should  not  be  included  in 
the  gross  income  of  the  return. 

GROSS  INCOME. 

20.  What  is  meant  by  "  gross  income  "? 

Gross  income  includes  gains,  profits,  and  income  derived. 
from  (  r<  ry  soiwce  whatever,  unless  wholly  exempt  from  in- 
come tax. 

GROSS  INCOME   WHERE'  THE   ONLY  BOOKS   OE   ACCOUNT  ARE   THOSE  OE 

RECEIPTS  AND  DISBURSEMENTS. 

27.  The  only  books  of  account  which  I  have  ever  kept  are  those  of 

receipts  and  disbursements.     How  shall  I  compute  my  gross 
income  ? 

You  must  include  in  gross  income  the  proceeds  of  sales  of 
all  stock  or  other  farm  products.  With  respect  to  animals 
purchased  and  used  solely  as  draft  and  work  animals  or  only 
for  breeding  purposes,  which  may  be  sold,  any  advance  above 
the  cost  reduced  by  depreciation  sustained  in  the  manner  de- 
scribed in  the  answer  to  question  33,  is  to  be  included  in  gross 
income.  There  must  also  be  included  in  the  gross  income 
gains,  profits,  and  income  from  all  other  sources. 

28.  What  items  of  gross  income  derived  from  my  business  of  farming 

are  to  be  reported  in  my  income-tax  return? 

All  amounts  received  from  the  sale  of  crops,  dairy  products, 
eggs,  live  stock,  whether  raised  on  the  farm  or  not,  live-stock 
products,  fruit,  and  all  other  farm  products,  and  all  amounts 
received  for  board  of  persons,  board  and  pasturage  of  ani- 
mals, labor  of  men  and  teams,  hire  or  use  of  machinery,  and 
all  other  earnings  arising  from  farming  operations  must  be 
reported  under  the  head  of  "Income  from  business  or  profes- 
sion "  on  the  tax  return. 

29.  I  raised  a  large  crop  of  wheat  in  1918,  but  did  not  sell  it  until 

after  the  close  of  the  year.     Should  I  include  the  proceeds 
from  the  sale  of  this  wheat  in  my  return  for  1918? 

No.  All  gains,  profits,  and  income  derived  from  the  sale 
or  exchange  of  farm  products,  whether  produced  on  the  farm 
or  purchased  and  resold  by  the  farmer,  must  be  included  in  the 
return  of  income  for  the  year  in  which  the  products  were  actu- 
ally marketed  and  sold. 
B0.  In  1918,  I  sold  wheat  which  was  raised  in  1915,  1910,  and  1917. 
May  I  deduct  the  expense  of  producing  this  wheat  in  com- 
puting my  profits,  or  must  I  include  in  gross  income  the  total 
amount  received  for  my  wheat? 


INCOME   TAX   PRIMER   FOR    FARMERS.  9 

Where  the  cost  of  stock  or  farm  products  purchased  in  pre- 
vious years  for  resale  or  the  expense  of  producing  stock  or 
products  on  the  farm  has  been  claimed  as  a  deduction  or  taken 
into  consideration  in  ascertaining  the  farmer's  liability  to  in- 
come tax  for  some  year  prior  to  1918,  the  entire  proceeds  of 
the  sale  are  to  be  returned  as  income  for  the  year  in  which  the 
sale  was  made,  for  the  reason  that  the  farmer  having  once  re- 
ceived the  benefit  of  the  deduction  is  not  again  entitled  to  it. 
if,  however,  such  cost  or  expense  has  not  been  claimed  as  a 
deduction  or  has  not  been  taken  into  consideration  hi  ascer- 
taining the  farmer's  liability  to  income  tax  for  a  previous  year 
the  amount  of  such  cost  or  expense  may  be  deducted  from  the 
selling  price  of  the  stock  or  farm  products  and  the  difference 
only  returned  as  gross  income. 

31.  I  rent  a  farm,  on  shares.     When  is  my  share  of  the  crops  and  stock 

to  be  taken  into  consideration  in  making  up  my  return? 

In  the  year  in  which  they  are  sold  or  converted  into  the 
equivalent  of  cash. 

32.  How  am  I  to  determine  the  amount  of  gain  or  profit  derived  from 

sale  of  property  which  is  returnable  for  income-tax  purposes? 

If  you  acquired  the  property  sold  prior  to  March  1,  1913, 
you  should  take  its  fair  market  price  or  value  of  that  date, 
add  thereto  all  amounts  subsequently  expended  in  making  im- 
provements, deduct  therefrom  depreciation  sustained  for  years 
prior  to  1918,  and  the  difference  between  the  result  obtained 
and  the  selling  price  is  the  amount  to  be  reported  under  gross 
income. 

If  you  purchased  the  property  on  or  after  March  1,  1913,  the 
difference  between  its  cost  plus  all  amounts  subsequently  ex- 
pended for  permanent  improvements  less  depreciation  sus- 
tained for  years  prior  to  1918  and  its  selling  price  is  to  be 
returned. 

If  the  property  came  to  you  on  or  after  March  1,  1913,  as  an 
inheritance  the  difference  between  the  appraisal  value  placed 
upon  it  at  the  date  of  the  death  of  the  testator  plus  all  amounts 
subsequently  expended  for  permanent  improvements  less  de- 
preciation as  above  indicated  and  its  selling  price  is  to  be 
returned. 

33.  How  is  the  value  as  of  March  1,  1913,  of  property  sold  in  1918 

to  be  determined? 

No  method  of  determining  this  value  can  be  stated  which 
will  adequately  meet  all  circumstances.  What  that  value  was 
is  a  question  of  fact  to  be  established  by  any  evidence  which 
will  reasonably  or  adequately  make  it  appear. 

34.  I  sold  a  farm  in  1918  for  $12,000  which   I    purchased   in   L910 

for  $4,000.  Its  fair  market  price  or  value  on  March  L,  1913, 
was  $6,000.  Subsequent  to  that  date,  I  have  spent  $2,000  for 
permanent  improvements  upon  the  place  and  have  deducted 
$1,000  for  depreciation  in  my  income-tax  returns.  How  much 
of  the  $12,000  received  must  I  include  in  gross  income? 
$5,000. 

35.  I  sold  some  shares  of  bank  slock  in  L918  for  $5,000.     This  stock 

was  purchased   by  me  in  1914  for  $3,000.      I   have  paid  $-100 

105136°— 19 2 


10  INCOME    TAX   PRIMER    FOR    FARMERS. 

interest  in  past  years  upon  indebtedness  incurred  in  the  pur- 
chase and  carrying  of  the  stock.  How  much  of  the  $5,000 
received  bv  me  must  I  include  in  cross  income? 

The  interest  paid  by  you  was  a  deductible  expense  from 
gross  income  in  income-tax  returns  for  the  rears  in  which 
paid.  Ion  are  therefore  required  to  include  in  gross  income 
of  1918  the  entire  difference  between  the  cost  and  the  sale 
price,  or  $2,000. 

36.  I  sold  cattle  in  1918  which  I  raised  on  my  farm.     Must  I  return 

in  gross  income  the  full  amount  received  for  them? 

Yes,  if  born  since  March  1,  1913.  If  born  before  that  date, 
the  value  on  that  date  may  be  deducted  from  the  sale  price 
in  ascertaining  the  income. 

37.  I  sold  a  pair  of  horses  in  1918  for  $500  which  I  purchased  in 

1915  for  $:H)0.  Must  I  return  in  gross  income  the  full  amount 
of  $500  received? 

No.  The  profit  realized  upon  a  sale,  in  this  case  $200,  must 
be  included  in  income.  The  case  would  be  different  if  the  live 
stock  had  been  raised  on  the  farm.  In  such  case  there  is  no 
capital  investment  and  the  full  amount  received  must  be  in- 
cluded in  income. 

38.  I  exchanged  a  farm  in  1918,  which  cost  me  in  1910  $3,000,  for 

rented  property  in  town.  The  farm  was  reasonably  worth  on 
March  1,  1913,' the  amount  of  $5,000.  The  value  of  the  prop- 
erty I  received  in  exchange  was  $10,000.  Did  I  receive  any 
taxable  income  from  the  transaction? 

The  taxing  act  provides  that  "  when  property  is  exchanged 
for  other  property  the  property  received  in  exchange  shall  for 
the  purpose  of  determining  gain  or  loss  be  treated  as  the 
equivalent  of  cash  to  the  amount  of  its  fair  market  value,  if 
an3T."  Since  the  property  received  in  exchange  was  worth 
$10,000,  your  profit  on  the  transaction  was  $5,000  and  that 
amount  must  be  included  in  gross  income. 

39.  If  a  farmer  exchanges  produce  for  merchandise,  groceries,  etc., 

is  the  value  of  such  merchandise  to  be  returned  for  tax  pur- 
poses ? 

Yes;  the  price  placed  by  the  merchant  upon  the  goods  ex- 
changed for  farm  produce  is  to  be  included  as  income  in  the 
farmer's  return. 
10.  A  tenant,  under  the  terms  of  a  lease,  is  required  to  pay  a  certain 
cash  rental  and  in  addition  make  certain  improvements.  Is 
the  cost  of  these  improvements  held  to  be  taxable  income  to 
the  property  owner? 

Reporl  cash  rental  for  year  in  which  received.  The  value  of 
improvements  made  should  be  returned  as  income  to  the  lessor 
for  the  yviw  during  which  the  lease  terminates. 
41.  I  have  two  children  who  live  at  home  and  are  regularly  em- 
ployed. One  is  17  years  old;  the  other  21  years  old.  Am  I 
required  to  include  the  amount  of  income  which  accrues  to 
each  during  a  calendar  year  in  my  own  personal  return? 

As  the  first  child  has  not  reached  its  majority  and  is  still 
legally  under  tout  control,  the  amount  of  its  income  is  to  be 
included  in  your  personal  return  and  is  subject  to  tax  in  your 


INCOME   TAX    PRIMER    FOR   FARMERS.  11 

hands.  The  income  of  the  child  which  has  attained  its  major- 
ity is  not  to  be  included  in  your  return  and  is  only  -abject  to 
tax  in  the  hands  of  that  child. 

42.  I  purchased  a  G  per  cent  $100  coupon  bond  at  its  face  value,  plus 

$1.50;  that  is,  three  months'  accrued  interest.  Three  months 
later  I  detached  a  coupon  therefrom  and  collected  $:'>  interest. 
Must  the  entire  amount  of  interest  received  lie  returned  as 
income. 

No.  Keport  only  so  much  interest  as  accrued  after  the  date 
of  your  purchase.    It  is  the  seller's  duty  to  report  the  balance. 

43.  Do  the  pensions  and  retired  pay  of  ex-officers  and   men   of  the 

United   States  military  and  naval  forces  constitute  items  of 
taxable  income  ? 
Ye>. 

44.  I  own  stock  in  a  bank  which,  under  a  State  law,  is  required  to  pay 

the  taxes  assessed  against  such  stock.  How  is  this  matter  to 
be  handled  for  income-tax  purposes? 

The  proportionate  part  of  the  entire  amount  of  taxes  so 
paid  by  the  bank,  which  is  properly  chargeable  against  the 
number  of  shares  held  by  you,  should  be  reported,  for  addi- 
tional tax  purposes,  in  your  personal  return  as  a  dividend, 
and  then  claimed  as  a  deduction  under  the  heading  of  "  Taxes." 

45.  Are  amounts  placed  to  the  credit  of  a  shareholder  in  a  building 

and  loan  association  subject  to  income  tax? 

Any  amount  credited  to  a  shareholder  when  the  title  to  such 
credit  passes  to  the  latter  at  the  time  of  the  credit  has  a  taxable 
status  for  the  normal  and  additional  income  tax  and  should 
be  included  in  the  return  rendered  for  the  year  during  which 
the  credit  is  made. 

46.  Where  service  is  rendered  for  a  stipulated  price,  wage,  or  salary. 

and  paid  with  something  other  than  money,  shall  consideration 
be  given  the  transaction  for  income-tax  purposes? 

Where  services  are  paid  for  with  something  other  than 
money,  the  fair  market  value  of  the  thing  taken  in  payment 
is  the  amount  to  be  included  as  income.  If  the  services  were 
rendered  at  a  stipulated  price,  in  the  absence  of  evidence  to  the 
contrary,  such  price  will  be  presumed  to  be  the  fair  value  of 
the  compensation  received. 

47.  In    1918   1    received    payment    of   a   note   and    interest    accrued    for 

the  preceding  five  years.  The  amount  of  the  note  was  $1,000 
and  thi'  amount  of  the  accrued  interest  $300.  rhe  note  was 
in  payment  of  a  tract  of  land  1  sold  in  1913.  a,i.  I  required 
to  return  the  full  amount  received  in  my  gross  income'' 

No:  but  you  are  required  to  include  the  full  amount  of  in- 
terest received. 

48.  During  the  year  1918  $60  was  placed  to  my  credit   by  banks  in 

which  T  had  money  deposited,  which  amount    represented   in 
terest  upon  my  deposits.     Does  this  interest,  which   was  no! 
received   by    me   in    cash    or   withdrawn    from    the    hank,   con- 
Stitute  a  part  of  my  gross  income  for  L918? 

Yes.  Interest  which  is  placed  to  one's  credit  and  which 
may  be  received  constitutes  a  part  of  the  gross  income. 


12  INCOME   TAX   PRIMER   FOR  FARMERS. 

49.  I  market  my  dairy  products  through  a  cooperative  association 

and  during  the  year  1918  I  received  $300  in  dividends  from 
the  association.  Am  I  required  to  include  these  dividends  in 
my  gross  income  and  are  they  exempt  from  normal  tax  the 
same  as  dividends  received  upon  my  shares  of  bank  stock? 

All  dividends  from  cooperative  associations  must  be  in- 
cluded in  gross  income.  They  are  not  exempt  from  normal 
tax  for  the  reason  that  the  association  itself  is  not  taxed  upon 
its  e.  unings.  The  dividends  simply  represent  additional 
amounts  acrning  to  you  upon  sales  through  the  association. 

50.  Are  dividends  from  cooperative  buying  associations  to  be  treated 

the  same  as  dividends  from  cooperative  selling  associations? 
Yes. 

51.  In  rendering  my  1015  return  I  claimed  a  deduction  to  cover  a 

debt  I  then  believed  to  be  absolutely  worthless.  In  1918  the 
debtor  has  discharged  part  of  his  obligations.  How  should  I 
treat  this  payment  for  income-tax  purposes? 

Consider  it  as  an  item  of  income  and  include  this  amount 
under  "  Gross  income  "  in  your  1918  return. 

52.  I  had  cattle,  which  I  raised  and  which  were  worth  $500,  killed 

by  lightning.  The  cattle  were  insured  and  I  received  $500 
insurance  money.    Must  this  be  included  in  income  ? 

Yes.  For  income-tax  purposes  the  receipt  is  the  equivalent 
ef  a  sale.    It  constitutes  income  to  you. 

53.  Are  there  any  items  of  income,  other  than  those  above  suggested, 

which  should  be  included  in  gross  income? 

Income  from  every  source  not  wholly  exempt  from  income 
tax  (see  answer  to  question  23)  must  be  included.  These  in- 
clude income  from  salaries  and  wages,  rents,  interest  on  notes, 
mortgages,  etc.;  also  income  from  trustees  and  partnerships, 
royalties  from  mines,  oil  and  gas  wells,  dividends  on  stocks,  etc. 

DEDUCTIONS    FROM    GROSS    INCOME. 

54.  What  deductions  are  allowed  from  gross  income  in  arriving  at 

let  income? 

1'hc  taxing  act  allows  the  following  deductions  from  gross 
income  in  ascertaining  net  income: 

(1)  All  the  ordinary  and  necessary  expenses  paid  or  in- 
curred during  the  taxable  year  in  carrying  on  any  trade  or 
busir 

(2)  xVll  interest  paid  or  accrued  within  the  taxable  year  on 
indebtedness  (except  on  indebtedness  incurred  or  continued 
to  purchase  or  carry  obligations  or  securities,  the  interest" 
upon  which  is  wholly  exempt  from  taxation  as  income  to  the 
taxpayer). 

(3)  Taxes  paid  or  accrued  within  the  taxable  year  except 
Federal  income,  war-prolits,  and  excess-profits  taxes,  and  ex- 
cept taxes  assessed  against  local  benefits  of  a  kind  tending  to 
increase  the  value  of  the  property  assessed. 

(4)  Losses  sustained  during  the  taxable  year  and  not  com- 
pensated for  by  insurance  or. otherwise,  if  incurred  in  trade  or 
business. 


INCOME   TAX   PRIMER   FOR   FARMERS.  13 

(5)  Losses  sustained  during  the  taxable  year  and  not  com- 
pensated for  by  insurance  or  otherwise,  if  incurred  in  any 
transaction  entered  into  for  profit,  though  not  connected  with 
the  trade  or  business. 

(G)  Losses  sustained  during  the  taxable  year  on  property 
not  connected  with  the  trade  or  business,  if  arising  from  fires, 
storms,  shipwrecks,  or  other  casualty,  or  from  theft,  and  if 
not  compensated  for  by  insurance  or  otherwise. 

(7)  Debts  ascertained  to  be  worthless  and  charged  off  within 
the  taxable  year. 

(8)  A  reasonable  allowance  for  the  exhaustion,  wear,  and 
tear  of  property  used  in  the  trade  or  business,  including  a 
reasonable  allowance  for  obsolesence. 

(9)  In  the  case  of  mines,  oil  and  gas  wells,  other  natural 
deposits  and  timber,  a  reasonable  allowance  for  depletion  and 
for  depreciation  of  improvements  according  to  the  peculiar 
conditions  in  each  case,  based  upon  costs,  including  cost  of 
development  not  otherwise  deducted. 

(10)  Contributions  or  gifts  made  within  the  taxable  year, 
to  corporations  organized  and  operated  exclusively  for  relig- 
ious, charitable,  scientific,  or  educational  purposes,  or  for  the 
prevention  of  cruelty  to  children  or  animals,  no  part  of  the 
net  earnings  of  which  inures  to  the  benefit  of  any  private 
stockholder  or  individual,  or  to  the  special  fund  for  vocational 
rehabilitation,  authorized  by  section  7  of  the  Vocational  Re- 
habilitation act,  to  an  amount  not  in  excess  of  15  per  centum 
of  the  taxpayers  net  income  as  computed  without  the  benefit 
of  this  paragraph. 

55.  What  items  are  not  deductible  from  gross  income  ? 
Section  215  of  the  act  provides : 

That  in  computing  net  income  no  deduction  shall  in  any  case  be 
allowed  in  respect  of — 

(a)   Personal,  living,  or  family  expense; 

(6)  Any  amount  paid  out  for  new  buildings  or  for  permanent  im- 
proTements  or  betterments  made  to  increase  the  value  of  any  property 
or  estate; 

(c)  Any  amount  expended  in  restoring  property  or  in  making  good 
the  exhaustion  thereof  for  which  an  allowance  is  or  has  been  made;  or 

(d)  Premiums  paid  on  any  life  insurance  policy  covering  the  life  of 
any  officer  or  employee,  or  of  any  person  financially  interested  in  any 
trade  or  business  carried  on  by  the  taxpayer,  when  the  taxpayer  is 
directly  or  indirectly  a  beneficiary  under  such  policy. 

ORDINARY   AND   NECESSARY    EXPENSES. 

56.  What  arc  the  principal  ordinary  and  necessary  expenses  de- 
ductible '. 

All  amounts  actually  paid  for  labor  in  preparing  land  for  a 
crop,  and  the  cultivation,  harvesting,  and  marketing  of  the 
crop;  the  cost  of  the  seed  and  fertilizer  used;  the  amounts 
expended  for  labor  used  in  caring  for  live  stock  and  the  cost 
of  the  feed;  the  amounts  actually  paid  in  making  repairs  to 
farm  buildings,  but  not  the  dwelling  house;  repairs  to  fences, 
farm  machinery,  etc.;  the  cost  of  materials  for  immediate  use, 
and  farm  tools  which  are  used  up  in  the  course  of  a  year  or  so, 


14  INCOME   TAX   PRIMER   FOR   FARMERS. 

such  as  pitchforks,  .spades,  and  similar  tools,  but  not  including 
farm  implements,  machinery,  wagons,  and  other  vehicles  which 
are  regarded  as  capital  investments;  and  the  amount  of  rent 
paid  for  a  farm  may  also  be  claimed.  The  amounts  paid  as 
the  purchase  price  for  live  stock,  including  draft  and  work 
animals,  are  held  to  represent  capital  investments  and  arc  not 
allowable  as  deductions.  Amounts  paid  as  the  purchase  price 
of  an  automobile  even  though  used  wholly  or  partly  in  the 
business  are  not  deductible  because  such  amounts  represent 
capital  investments.  A  reasonable  allowance  for  depreciation 
may  be  claimed  based  upon  a  portion  of  the  cost  in  the  ratio 
that  the  use  of  the  automobile  for  business  purposes  bears  to 
its  use  for  pleasure  or  for  personal  and  family  convenience. 

57.  Are   any   payments   for  permanent   improvements  to  my   farm 

deductible  ? 

No.  They  are  not.  expenses.  They  are  investments  of 
capital. 

58.  May  I  deduct  from  gross  income  the  cost  of  dairy  cattle  which 

may  be  resold  ? 

No.  The  cost  of  the  cattle  materially  adds  to  the  value  of 
your  possessions.  If  the  cattle  purchased  are  resold  at  aprofitj 
you  will  be  required  to  consider  as  profits  only  the  difference 
between  the  cost  and  the  selling  price. 

59.  I  purchased  in  1918  a  mowing  machine  and  cultivator,  at  a  cost 

of  $150,  and  small  hand  tools  at  a  cost  of  $50.  Can  these 
amounts  be  deducted  from  gross  income  ? 

The  cost  of  the  hand  tools  may  be  deducted  as  an  ordinary 
expense.  The  purchase  of  the  cultivator  and  mowing  ma- 
chine constitute  improvements.  They  have  an  estimated  life 
of  more  than  one  year,  and  payment  for  them  should  be  con- 
sidered capita]  expenditures.  A  reasonable  amount  of  depre- 
ciation of  the  machines  may  be  deducted  from  gross  income. 

60.  Can  payments  of  premiums  on  insurance  policies  for  insurance 

against  fire,  hail,  tornado,  or  windstorm  be  deducted? 

The  cost  of  insurance  of  crops  and  of  farm  buildings,  other 
than  the  farm  dwelling,  is  deductible. 

61.  Can  the  cost  of  gasoline,  repairs,  and  upkeep  of  an  automobile 

or  other  vehicle  used  partly  for  business  purposes  and  partly 
for  pleasure  be  deducted? 

If  the  automobile  is  used  one-half  of  the  time  or  one-third 
of  the  time  for  business  purposes,  the  same  fractional  part  of 
the  cost  of  repairs,  etc.,  may  be  deducted  as  a  necessary  ex- 
pense. No  deduction  may  be  made  if  the  automobile  is  used 
solely  for  the  pleasure  or  personal  convenience  of  the  taxpayer 
or  his  family. 

62.  Are  the  items  of  expense  incurred  and  paid  by  me  during  the 

calendar  year  in  connection  with  a  farm  which  I  lease  to  an- 
other on  a  cash  or  crop-share  rental  basis,  such  as  repairs  to 
fences,  farm  buildings,  etc..  allowable  as  deductions? 
Yes. 
C3.  A  tenant,  under  the  terms  of  a  lease,  is  obliged  to  pay  a  certain 
cash  rental  and  all  taxes  assessed  against  the  property  and 
keep   it  insured.     May  he  claim   as   a  business  expense  the 


INCOME   TAX    PRIMER   FOR   FARMERS.  15 

aggregate  amount  of  rental,  taxes,  and  insurance  premiums 
paid? 

Yes:  if  the  property  is  used  by  the  tenant  for  business  or 
hade  purposes  and  not  as  a  home,  the  aggregate  amount  may 
be  claimed  us  a  deduction  for  the  year  during  which  actually 
paid. 

64.  I  own  stock  in  a  corporation  which,  in  1918,  assessed  each  of  its 

stockholders  $50  on  each  share  held.  Can  the  amount  paid  by 
me  be  claimed  as  a  deduction? 

No.  Assessments  made  by  a  corporation  on  its  capital 
stock  are  regarded  as  further  investments  of  capital  and  do 
not  constitute  an  allowable  deduction  in  the  return  of  the 
individual. 

65.  Can  the  value  of  a  crop  paid  to  the  landlord  by  the  tenant  be 

deducted  as  an  expense  by  the  tenant? 

No.  It  is  not  a  part  of  the  expenses  'paid  by  him.  He  may 
deduct  all  amounts  paid  by  him  in  raising  the  crop. 

66.  I  employ  a  man  to  assist  me  in  operating  my  farm  and  a  woman 

to  assist  about  the  house.  Is  the  compensation  paid  to  each 
allowable  as  a  deduction? 

Unquestionably,  as  to  the  amount  paid  to  the  male  em- 
ployee, but  a  line  must  be  drawn  as  to  the  amount  paid  to 
the  female  employee.  If  her  time  is  employed  entirely  in 
taking  care  of  milk  and  cream  produced  for  sale,  in  the  pro- 
duction of  butter,  cheese,  etc.,  the  care  of  milk  cans  and 
churns,  or,  if  a  separate  table  is  maintained  for  laborers  em- 
ployed on  the  farm  and  her  services  are  used  entirely  in  the 
preparation  and  serving  of  the  meals  furnished  the  laborers 
and  in  earing  for  their  rooms,  the  compensation  paid  her  e< in- 
stitutes an  allowable  deduction.  If,  however,  she  is  employed 
to  assist  in  caring  for  the  farmer's  own  household,  no  deduc- 
tion can  be  claimed. 

67.  If  I  employ  a  minor  son  or  daughter  to  assist  me  in  my  business 

or  trade  and  I  pay  a  salary  or  wage  for  such  assistance,  may 
I  claim  the  amount  as  a  deduction? 

No.  If,  however,  the  son  or  daughter  has  attained  his  or 
her  majority,  the  amount  of  compensation  paid  for  his  or  her 
services  may  he  so  claimed. 

68.  In  purchasing  fertilizers  1  gave  note-  in  payment  which   1  had 

not  paid  at  the  close  of  the  year.  Should  the  cost  of  the  fer- 
tilizers be  deducted  in  the  year  in  which  1  gave  the  notes  or 
in  the  year  in  which  I  paid  them? 

Payment  by  a  note  i^  the  equivalent  of  a  payment  in  cash. 
Therefore,  the  cost  of  the  fertilizers  should  he  deducted  from 
income  in  the  year  in  which  the  notes  were  given. 

69.  I    pay   dues  to  a   county  social   club.     Are  these   payments   de- 

deductible  3 

No;  such  dues  are  a  personal  expense  father  than  a  business 
expense. 

70.  In    California    and    other    States    fruit    growers,    ranchers,    and 

farmers  are  shareholders  in  irrigation  companies,  which  are 

mutual  in  character,  and  Ihey  are  often  assessed,  in  propor- 
tion to  their  holdings  of  stock,  for  sufficient  amounts  to  make 
repairs  to  the   irrigation  system,  cleaning  out    pipe1-,  laterals. 


16  INCOME   TAX    PRIMER    FOR    FARMERS. 

etc.    Can  such  assessments  be  claimed  as  deductions  under  the 
head  of  business  expenses? 

Yes.  Where  the  purpose  of  the  assessment  is  merely  to  raise 
funds  to  keep  the  irrigation  system  in  usable  condition  and 
not  to  make  extensions  or  betterments,  the  amount  assessed 
against  each  shareholder  may  be  so  claimed. 

71.  While   driving  my    automobile   I   collided   with   a   vehicle  and 

was  compelled    to   pay  $100  in  settlement.     Is  this  payment 
deductible  \ 

If  you  Mere  riding  for  pleasure  it  is  a  personal  expense  and 
is  not  deductible.  If  the  automobile  was  being  used  in  con- 
nection with  your  business  at  the  time  it  is  deductible. 

72.  I  purchased  a  threshing  machine  at  an  auction.     Is  the  amount 

I  paid  a  legal  deduction? 

Xo;  it  is  an  investment  of  capital. 

73.  Can  the  cost  of  digging  irrigation  ditches  be  deducted   as  an 

expense  ? 

No ;  but  the  cost  of  repairing  such  ditches  may  be  deducted. 

INTEREST. 

74.  Can  all  interest  paid  on  indebtedness  be  deducted? 

Yes;  except  on  indebtedness  to  purchase  or  carry  securities 
(like  municipal  or  county  bonds)  the  income  from  which  is 
wholly  exempt  from  tax. 

TAXES. 

75.  Can  all  taxes  be  deducted? 

Yes ;  with  the  exception  of  United  States  income,  and  excess- 
profits  taxes,  inheritance  or  legacy  taxes,  and  assessments 
against  local  benefits  of  a  kind  tending  to  increase  the  value 
of  the  property  assessed. 
7K.  Am  I  not  entitled  to  deduct  the  income  tax  which  I  paid  to  the 
collector  in  1918? 

No. 

LOSSES. 

77.  What  losses  can  be  deducted  ? 

See  the  answer  to  question  54. 

78.  My  wheat  crop  was  ruined  by  hail.    I  had  no  insurance.    May  I 

deduct  the  value  of  the  crop  as  a  loss? 

No.     The  value  of  the  crop  has  never  entered  into  gross  in- 
come.   The  cost  of  raising  the  crop  is  deductible  as  a  necessary 
expense. 
T'».  How  am  I  to  determine  what  amount  of  loss,  resulting  from  a 
sale  of  property,  is  allowable  as  a  deduction? 

The  same  method  of  computation  should  be  followed  as  is 
outlined  in  the  answer  to  the  thirty-second  question.  If  the 
result  is  a  loss  instead  of  a  gain,  that  loss  may  be  claimed  as  a 
deduct  ion. 
80.  Suppose  1  buy  a  farm,  which  is  much  run  down,  with  the  inten- 
tion of  making  it  a  profit-paying  property — that  is,  I  intend 
to  operate  it  for  profit  and  not  for  recreation  or  pleasure. 
To  do  this  1  am  obliged  to  expend  large  amounts  for  labor 
in  plowing  and  cultivating  the  land,  for  fertilizer,  lime,  etc., 
and   for  several  years  the  expenses  will  greatly  exceed  the 


INCOME   TAX   PRIMER    FOR    FARMERS.  17 

gross  receipts.     Can  the  excess  of  expenses  over  receipts  for 
each  year  be  claimed  as  a  loss? 

It  is  held  that  all  such  necessary  expenses  as  contemplated 
by  the  income-tax  law  of  cultivating,  operating,  or  managing 
a  farm  on  a  basis  embodying  the  recognized  principles  of 
commercial  farming,  for  the  purpose  of  gain  or  profit  and  not 
for  recreation  or  pleasure,  may  be  claimed  as  deductions  in 
returns  of  income,  even  though  these  expenses  exceed  the 
income  from  the  farm  and  the  result  is  a  continued  loss, 
provided  the  farm  is  continued  to  be  operated  on  a  strictly 
commercial  basis. 

81.  I  own  a  tract  of  timber  which  was  partially  destroyed  by  fire 

during  l'-'l".     Is  this  loss  allowable  as  a  deduction? 

The  actual  amount  of  capital  invested  in  standing  timber, 
if  acquired  on  or  after  March  1,  1913,  and  later  destroyed 
by  fire,  may  be  claimed  as  a  deduction  if  not  reimbursed 
by  insurance  or  otherwise.  If  the  timber  was  acquired  prior 
to  March  1,  L913,  its  fair  market  price  or  value  as  of  that  date 
may  be  claimed.  To  illustrate  the  method  to  be  employed  in 
computing  the  amount  of  loss  allowable  as  a  deduction,  the 
following  is  submitted:  A  tract  of  land  was  acquired  prior 
to  March  1,  L913,  and  the  estimated  amount  of  timber  stand- 
ing on  that  tract  on  that  date  was  1,000.000  feet,  board  meas- 
ure, the  fair  market  price  or  value  per  1,000  feet  established 
by  the  current  prices  prevailing  in  the  locality  of  the  tract  in 
question  as  of  March  1,  1913,  being  $4.  During  the  year  1917, 
400.000  feet  of  this  timber  was  destroyed  by  fire.  In  this  case 
$1,600  is  the  amount  which  may  be  claimed  as  a  deduction. 

82.  If  cattle  or  other  live  stock  are  produced  on  a  farm  which  I 

own  or  operate,  and  are  then  lost  through  disease,  may  I  claim 
their  value  at  the  time  of  death  as  an  allowable  deduction? 

No.  If  the  stock  which  died  were  purchased  and  the  cost 
has  not  been  claimed  in  a  previous  return  as  a  deduction,  that 
cost  may  be  claimed  as  a  deduction  in  your  return  rendered 
for  the  year  dining  which  the  loss  occurred. 

88.  My  barn,  which  cost  $3,000  to  build,  was  destroyed  by  lightning. 
I  received  $2,000  insurance  upon  it.  Am  I  entitled  to  deduct 
the  full  amount  of  the  loss? 

Your  actual  loss  was  $1,000,  and  you  are  entitled  to  deduct 
this  amount  from  gross  income  as  a  loss. 

84.  In  1918  I  sold  a  pair  of  horses  for  $400  for  which  I  paid  $550 
in  L915.     Am  I  entitled  to  deduct  the  loss  of  $150  sustained ? 
^cs.  less  any  deduction  heretofore  claimed  for  depreciation. 

B5.  I  purchased  $5,000  Liberty  bonds  in  May,  1918,  paying  $5,000  for 
same.  The  market  price  of  these  bonds  was  onlv  $4,800  on 
December  31,  L918.  Am  I  entitled  to  deduct  a  loss  of  $200 
on  these  securit  ies  '. 

No.  The  securities  have  not  been  sold  and  no  loss  has  been 
sustained.  No  !<i->  can  be  deducted  until  securities  are  dis- 
posed of  and  a  loss  actually  is  sustained. 

DEBTS  ASCERTAINED  tii  be  WORTHLESS. 

86.  What  conditions  ace  necessary  in  order  that  a  debt  may  be 
claimed  as  a  deduction? 


18  INCOME   TAX    PRTMER    FOR   FARMERS. 

It  must  be  (a)  a  bona  fide  debt,  (b)  definitely  ascertained  to 
be  worthless  and  uncollectible  during  the  year  for  which  the 
deduction  is  claimed,  and  (c)  if  books  are  kept  it  must  be 
charged  off  within  the  year  for  which  the  deduction  Ls  claimed 
and  no  longer  considered  an  asset  or  carried  as  such  on  the 
books. 

87.  In  1918  a  corporation  or  a  firm  to  which  I  had  loaned  money 

became  bankrupt.  Can  this  debt  be  considered  absolutely 
worthless  and  claimed  as  a  deduction  for  1918? 

Yes,  if  it  is  definitely  known  that  nothing  can  be  collected 
from  the  debtor  itself  or  any  person  connected  with  it. 

88.  Is  it   absolutely  necessary  that  the  debtor  corporation  or  firm 

mentioned  in  the  eighty-seventh  inquiry  be  declared  a  bank- 
rupt and  its  receiver  discharged  before  I  can  claim  a  deduction 
on  account  of  the  debt  in  question? 

No.  If  the  debtor  corporation  has  no  assets  whatsoever 
available  for  application  to  the  debt  in  question,  and  it  is  defi- 
nitely known  that  nothing  whatsoever  can  be  collected  from 
the  debtor  itself  or  any  person  connected  with  it,  a  creditor 
need  not  go  to  the  expense  of  instituting  bankruptcy  proceed- 
ings in  order  to  establish  his  right  to  claim  the  worthless  debt 
as  a  deduction. 

89.  "A"  indorses  a  note  for  "  B."    The  latter  has  since  departed  for 

parts  unknown  and  the  note  became  due  in  1918,  and  "A"  was 
required  to  make  good  his  indorsement.  Can  he  now  claim  as  a 
deduction  the  amount  paid  by  him  to  the  creditor? 

Yes.  If  he  has  no  knowledge  of  "  B's  "  present  whereabouts 
and  has  good  reason  to  believe  that  he  is  possessed  of  no  assets 
and  that  it  is  his  intention  never  to  make  payment  of  it,  the 
amount  so  paid  by  "A"  may  be  considered  a  bad  debt  due  him 
from  "  B." 

DEPRECIATION. 

90.  What  is  depreciation? 

Depreciation  is  a  lessening  in  value  of  farm  buildings,  ma- 
chinery, etc.,  employed  in  the  business  arising  from  wear, 
tear,  or  obsolescense. 

91.  At    what    rates   may    depreciation   be   claimed,   and    under   what 

conditions? 

The  annual  allowance  for  depreciation  should  be  based 
upon  the  life  of  the  property ;  that  is,  the  cost  of  the  property 
or  i  he  value  el'  the  same  when  acquired,  if  received  bj  gifl  or 
bequest,  or  its  fair  market  price  or  value  as  of  March  1,  1913, 
if  acquired  prior  thereto,  should  be  ratably  spread  over  its  life. 
For  instance,  the  rate  of  depreciation  to  be  deducted  on  build- 
ings used  for  business  purposes,  the  probable  life  of  which  is 
50  years,  would  be  2  per  cent.  The  probable  life  means,  of 
course,  the  number  of  years  the  property  would  be  usable  in 
business  if  ordinary  repairs  are  made  from  the  date  of  acqui- 
sition or  in  case  of  property  acquired  prior  to  March  1,  1913, 
the  number  of  years  the  property  would  be  usable  from 
March  I.  1913.  In  the  case  of  property  acquired  by  gift  or 
bequest,  the  "cost"  of  such  property  for  depreciation  pur- 
pose^ is  the  appraised  value  at  the  time  the  property  was 


INCOME    TAX    PRIMER    FOR    FABMEBS.  19 

acquired.  If  property  in  respect  of  which  depreciation  is 
claimed  was  acquired  prior  to  March  1.  1!>13.  the  fair  market 
value  as  of  that  date  will  be  assumed  to  be,  in  the  absence  of 
proof  to  the  contrary,  the  cost  of  the  property,  less  deprecia- 
tion up  to  that  date. 

In  claiming  depreciation  the  following  fundamental  prin- 
ciples must  be  taken  into  consideration: 

(a)  Only  such  depreciation  as  results  from  exhaustion, 
wear,  and  tear  of  property,  arising  out  of  its  use  or  employ- 
ment in  business  or  trade,  can  be  claimed.  Depreciation  in 
the  value  of  a  home  or  any  article  of  property,  such  as  auto- 
mobiles, used  for  personal  pleasure  or  convenience,  can  not  be 
claimed;  the  property  must  be  used  for  the  purpose  of  pro- 
ducing  income. 

( b )  Depreciation  in  the  value  of  land,  whether  improved 
or  unimproved,  due  to  ordinary  erosion,  exhaustion,  or  any 
other  cause  can  not  be  claimed. 

(c)  Where,  in  the  course  of  years,  the  owner  of  property 
has  claimed  its  full  cost  as  depreciation  in  his  income  tax 
returns,  no  further  claim  will  be  allowed. 

(d)  The  value  to  be  cared  for  by  depreciation  is  the  actual 
amount  invested  in  the  property  and  not  the  value  which  may 
be  arbitrarily  or  otherwise  fixed. 

i  Note. — For  information  relative  to  deduction  for  obsolescence  see 
Regulations  No.  45.) 

02.  Am  I  entitled  to  deduct  under  the  heading  of  "  Depreciation  " 
shrinkage  in  the  value  of  work  horses  and  mules  purchased 
and  not  raised  on  my  farm? 

Yes.  Purchase  of  work  horses  and  mules  constitute  capital 
outlays,  and  therefore  depreciation  sustained  may  be  de- 
ducted. » 

DEPLETION. 

93.  Under  what  conditions  and  at  what  rates  may  depletion,  due 
to  the  removal  of  a  natural  product  from  oil  or  gas  wells, 
mine-,  quarries,  etc..  be  claimed? 

Section  214,  paragraph  10,  of  the  revenue  act  of  1918 
states  how  the  amount  of  depletion  allowable  as  a  deduction 
is  to  be  ascertained,  but  as  so  main'  factors  are  to  be  con- 
sidered in  computing  depletion,  an  answer  which  will  be 
applicable  to  all  cases  where  depletion  occurs  can  not  here 
be  given.  Such  factors  are  covered  in  considerable  detail  by 
the  Kegulations,  copies  of  which  may  be  obtained  from  the 
collector  of  internal  revenue  for  your  district,  and  where 
these  regulations  do  not  afford  all  the  information  necessary 
in  your  particular  case  a  detailed  statement  covering  all  the 
facts  and  figures  in  your  case  should  be  forwarded  to  the 
collector,  with  a  request  for  a  ruling. 

GIFTS. 

D4.  ITow  am  I  to  determine  to  what  extent  contributions  or  gifts 
made  to  corporations,  organized  and  operated  exclusively 
for  religious,  charitable,  scientific,  or  educational  purposes, 
or  for  the  prevention  of  cruelty  to  children  or  animals,  or  to 


20  INCOME   TAX    PRTMER   FOE   FARMERS. 

the  special  fund  for  vocational  rehabilitation,  may  be 
claimed  as  a  deduction? 

You  should  first  ascertain  what  your  taxable  net  income 
would  be  were  you  not  entitled  to  a  deduction  on  account  of 
such  contributions  or  gifts,  and  then  if  the  aggregate  of  such 
contributions  or  gifts,  made  during  the  year  to  such  corpo- 
rations does  not  exceed  15  per  cent  of  your  taxable  net  in- 
come so  computed  their  aggregate  amount  may  be  entered 
in  the  space  provided  therefor  under  "  General  deductions " 
on  a  personal  return  form.  If  such  aggregate  amount  ex- 
ceeds 15  per  cent  of  your  taxable  net  income  so  computed, 
the  excess  can  not  be  claimed. 

For  example:  Your  total  taxable  net  income  amounts  to 
$20,000.  During  the  year  you  have  contributed  to  the  Na- 
tional Red  Cross,  $1,000;  to  the  Young  Men's  Christian  As- 
sociation, $1,000;  toward  the  construction  of  a  new  church, 
$1,000;  and  to  the  associated  charities  of  your  home  city, 
$500;  a  total  of  $3,500.  Fifteen  per  cent  of  your  total  net 
income  amounts  to  $3,000;  therefor  this  latter  amount  may 
be  claimed  as  a  deduction  and  the  balance  of  your  contribu- 
tions and  gifts  may  not  be  claimed. 

In  claiming  a  deduction  on  account  of  such  contributions 
or  gifts  there  should  be  shown  on  the  return  of  income  (a) 
the  name  and  address  of  each  organization  to  which  a  con- 
tribution or  gift  was  made  and  (b)  the  date  and  amount 
of  each  such  contribution  or  gift. 

Where  the  contribution  or  gift  was  other  than  money  the 
basis  for  calculation  of  its  value  shall  be  the  fair  market 
value  of  the  property  given  at  the  time  of  contribution  or 


gift. 


ACCOUNTS   KEPT  BY  USE  OF  INVENTORIES. 


95.  What  is  meant  by  the  "  inventory  basis  "  of  reporting  income  ? 

The  inventory  basis  of  keeping  accounts  requires  that  a 
farmer  take  an  inventory  at  the  close  of  each  year,  and  that 
his  gross  income  be  based  upon  sales  plus  the  gain  or  minus 
the  loss  during  the  year  as  shown  in  the  inventory.  A  farmer 
computing  his  income  upon  the  inventory  basis  should  add 
to  the  sales  of  live  stock  and  other  farm  products  during  the 
year  all  other  income  from  farming  operations  and  the  amount 
of  the  inventory  at  the  close  of  the  year,  and  should  deduct 
therefrom  amounts  spent  in  farming  operations,  including  the 
cost  of  live  stock  or  produce  purchased. 

An  example  of  the  inventory  method  of  ascertaining  the 
gross  income  is  as  follows: 

Sales  of  live  stock  and  products  during  year $0,000 

Inventory  of  live  stock  and  products  at  close  <>f  year 4,000 

13,  (MM) 

Inventory   of  live  stock  and   products  at    beginning   of 

year .%'{,  000 

Cost  of  live  stock  purchased  during  year 2,000 

5, 000 

Gross  income  from  fanning,  to  be  shown  <>n   return 8,000 


INCOME   TAX   PRIMER   FOR   FARMERS.  21 

06.  If  an  inventory  is  used,  must  the  lire  stock  and  products  enter- 

ing into  the  inventory  be  valued  at  cost  or  at  market  price? 

Under  the  regulations  of  the  Treasury  Department  in- 
ventories may  be  taken  at  cost  or  at  market  price,  whichever 
is  lower. 

07.  If  the  inventory  method  is  used,  what  items  should  enter  into 

the  inventory? 

In  general,  only  farm  products  and  live  stock,  which  are 
the  subject  of  sale,  and  therefore  of  income  in  the  ordinary 
business  of  the  farmer. 

08.  I  keep  books  of  account  and  use  the  inventory  method  as  de- 

scribed above.  Am  I  entitled  to  claim  a  deduction  for  loss  of 
live  stock  included  in  the  inventory,  which  live  stock  died 
during  the  return  year?  In  other  words,  is  the  cost  or  in- 
ventory value  of  the  live  stock,  which  died,  a  deduction  from 
gross  income  as  a  loss? 

No.  Since  the  live  stock  which  died  was  not  included  in  the 
inventory  at  the  close  of  the  year  you  received  credit  for  the 
loss  in  the  reduced  inventory  at  the  (dose  of  the  year,  so  that 
if  you  were  to  claim  a  deduction  from  gross  income,  as  shown 
on  the  return,  you  would  be  receiving  a  double  deduction  in 
respect  of  the  loss. 
00.  Am  I  entitled  to  deduct  under  the  item  "  Depreciation  "  on  the 
return  form  the  decrease  in  the  value  of  live  stock  included 
in  the  inventory? 

No.  When  the  inventory  was  taken  at  the  close  of  1018 
the  value  of  the  live  stock  was  or  should  have  been  decreased 
to  show  the  depreciation  in  its  value  and  you,  therefore, 
receive  the  benefit  of  the  decrease  in  value  in  computing 
gross  income.  If  it  were  allowed  as  a  deduction  on  the 
return  it  would  be  a  double  deduction. 

100.  Does  the  internal-revenue  bureau   require   farmers  to   take   in- 

ventories and  compute  net  income  upon  the  inventory 
basis '. 

No.  It  is  necessary,  however,  that  farmers  keep  books 
which  shall  accurately  reflect  their  gains  and  profits  from 
their  business  of  farming.  If  a  farmer  keeps  an  accurate 
record  of  all  receipts  from  the  sales  of  farm  products  and  of 
income  from  every  other  source  and  an  accurate  record  of  ex- 
penses paid  or  incurred,  a  return  can  be  made  at  the  close  of 
each  taxable  year  which  shall  accurately  reflect  the  gains  and 
profits. 

CREDITS. 

101.  I  understand  that  a  part  of  the  net  income  is  not  liable  to  the 

normal  tax.  To  what  credits  am  I  entitled  in  arriving  at 
the  net  income  liable  to  the  normal  tax  I 

(a)  The  amounts  received  as  dividends  from  a  corpora 
tion  which  is  taxable  within  the  United  States  upon  its  net 
income. 

(b)  The  amount   received  as  interest   upon  obligations  of 

the  United  States  which  is  included  in  gross  income. 

(c)  The    personal    exemptions    referred    to    in    answers    to 
questions  3,  4,  5,  and  6. 


22  income  tax  primeb  for  farmers. 

RETURNS  OF  INFORMATION; 

102.  Are  returns  of  information  required  of  farmers? 

Section  256  of  the  revenue  act  of  191S  provides  in  part 
that  all  individuals,  corporations,  and  partnerships,  in  what- 
ever capacity  acting,  including  lessees  or  mortgagors  of  real 
or  personal  property,  fiduciaries,  and  employers,  making  pay- 
ment to  another  individual,  corporation,  or  partnership,  of 
interest,  rents,  salaries,  wages,  premiums,  annuities,  compen- 
sations, remunerations,  emoluments,  or  other  fixed  or  de- 
terminable gains,  profits  *  *  *  of  or  at  the  rate  of 
$1,000  or  more  in  any  taxable  year  *  *  *  shall  render 
a  true  and  accurate  return  to  the  commissioner,  under  such 
regulations  and  in  such  form  and  manner  and  to  such  extent 
as  may  be  prescribed  by  him  with  the  approval  of  the  Sec- 
retary, setting  forth  the  amount  of  such  gains,  profits,  and  in- 
come, and  the  name  and  address  of  the  recipients  of  such 
payment. 

103.  Upon   what    forms  shall  I   make  returns  of  information   and 

with  whom  shall  I  file  such  returns? 

Returns  of  information  should  be  filed  on  Form  1099  (re- 
vised) and  should  be  filed  with  the  Commissioner  of  Internal 
Revenue  on  or  before  March  1  of  each  year,  accompanied  by 
a  letter  of  transmittal,  under  oath,  on  Form  1096  (revised). 

104.  I  pay  an  annual  rent,  exceeding  $1,000,  to  an  agent  who  refuses 

to  disclose  the  name  of  the  landlord.  May  1  require  the 
agent  to  furnish  the  name  and  address  of  his  principal  in 
order  that  I  may  make  a  proper  return  of  information? 

Yes.  When  an  agent  receives,  in  behalf  of  his  principal, 
a  payment  falling  within  the  provisions  of  law  for  informa- 
tion at  the  source,  he  is  required  by  law  to  furnish  the  name 
and  address  of  the  principal  upon  receipt  of  a  demand  there- 
for from  the  payer,  and  in  default  of  a  compliance  with  such 
a  demand  the  agent  becomes  liable  to  a  penalty  of  not  more 
than  $i.oo(). 

105.  Where  a  person  receives  a  cash  compensation  for  services  ren- 

dered, and  in  addition  thereto  commissions,  living  expenses, 
or  other  allowances,  is  the  aggregate  amount  of  cash,  plus  the 
value  to  such  person  of  the  allowances,  to  be  returned? 

Fes.  A  return  is  required  in  each  case  where  the  cash  com- 
pensation, plus  the  value  of  the  allowance-,  equals  or  exceeds 
$1,000  for  the  taxable  year. 

PAYMENT,    ABATEMENT,    AM)    REFUND    OF     TAX    ASSESSED. 

106.  To  whom  is  an  assessment  of  income  tax  to  be  paid  \ 

To  the  collector  of  internal  revenue  with  whom  your  re- 
turn was  filed. 

107.  When  does  payment  of  income  tax  assessed  against  an  individual 

on  a  calendar  year  return  become  due  and  payable? 

The  tax  is  to  be  paid  in  four  installments,  each  consisting 
of  one-fourth  of  the  total  amounl  of  the  tax.  The  firsl  in- 
stallment is  to  be  paid  at  the  time  fixed  by  law  for  filing  the 
return,  March  15,  the  second  installment   is  to  be  paid  on  the 


INCOME   TAX    PRIMER    FOR   FARMERS.  23 

fifteenth  day  of  June,  the  third  installment  on  tho  fifteenth 
day  of  September,  and  the  fourth  installment  on  the  fif- 
teenth day  of  December,  after  the  time  fixed  by  law  for 
filing  the  return.  Where  an  extension  of  time  for  filing  a  re- 
turn is  granted,  the  time  for  payment  of  the  first  installment  is 
to  be  postponed  until  the  date  of  the  expiration  of  the  period 
of  the  extension,  but  the  time  for  payment  of  the  other  in- 
stallments is  not  to  be  postponed  unless  the  commissioner  so 
provides  in  granting  the  extension.  However,  in  any  case 
in  which  the  time  for  the  payment  of  any  installment  is.  at 
the  request  of  the  taxpayer,  postponed  because  of  an  exten- 
sion of  time  for  filing  the  return,  there  is  to  be  added  as  part 
of  such  installment  interest  thereon  at  the  rate  of  £  of  1 
per  cent  per  month  from  the  time  it  would  have  been  due 
had  no  extension  been  granted  until  paid.  If  any  installment 
is  not  paid  when  due  the  whole  amount  of  the  tax  unpaid 
becomes  due  and  payable  upon  notice  and  demand  by  the 
collector.  If  any  tax  is  not  paid  wThen  due  the  collector  will 
issue  a  notice  and  demand  therefor,  and  if  at  the  expiration 
of  10  days  from  date  of  this  notice  the  tax  remains  unpaid  it 
becomes  delinquent.  The  penalty  for  such  delinquency  is 
5  per  cent  of  the  amount  of  the  unpaid  tax  and  interest  at 
the  rate  of  1  per  cent  per  month  upon  such  tax  from  the  time 
the  same  became  due  to  date  of  payment. 

108.  May  the  income  tax  due  from  a  taxpayer  be  paid  in  a  single 

payment  instead  of  in  installments? 

Yes.  Section  250  of  the  act  provides  that  the  tax  may.  at 
the  option  of  the  taxpayer,  be  paid  in  a  single  payment,  in 
which  case  the  total  amount  is  to  be  paid  on  or  before  the  time 
fixed  by  law  for  filing  the  return;  or,  where  an  extension  of 
time  for  filing  the  return  has  been  granted,  on  or  before  the 
expiration  of  the  period  of  such  extension. 

109.  What  recourse  has  a  taxpayer  when  he  feels  that  he  has  been 

assessed  with  income  tax  in  excess  of  his  true  tax  liability? 

lie  may  pay  the  tax  under  protest  and  file  claim  for  refund, 
or  he  may  exercise  his  right  to  file  with  the  collector  of  inter- 
nal revenue  for  his  district  a  claim  for  abatement,  executed 
on  Form  47.  copies  of  which  may  be  obtained  from  the  col- 
lector. The  filing  of  a  bona  fide  claim  prior  to  the  due  date  of 
the  tax  acts  as  a  stay  to  the  collection  of  the  5  per  cent  penally 
for  delinquency  in  payment,  provided,  in  ease  of  rejection  of 
the  claim,  the  tax  due  is  paid  within  10  days  from  the  date  of 
notice  of  such  rejection.  However,  in  case  of  rejection,  interest 
at  the  rate  of  one-half  of  1  per  cent  per  month  will  run  from 
the  date  the  amount  was  due  until  the  claim  is  decided. 

It  should  be  understood,  however,  that  the  filing  of  a  claim 
for  abatement  of  tax  alleged  to  have  been  erroneously  assessed 

does  not  operate  as  a  suspension  of  the  collection  of  the  tax. 
If   the   collector    feels   that    the    suspension    of    collection    will 

jeopardize  the  interests  of  the  Government,  lie  may  collect  the 
tax  and  leave  the  taxpayer  to  his  remedy  by  a  claim  for 
refund. 


24  INCOME   TAX   PRIMER   FOR   FARMERS. 

110.  In  1918  I  paid  $50  income  tax  in  excess  of  my  true  tux  liability 

for  the  year  1917.    Can  this  excess  payment  be  applied  in  pay- 
ment of  a  later  assessment  of  tax? 

Yes;  the  excess  payment  is  to  be  credited  against  any  in- 
come, war-profits  or  excess- profits  taxes,  or  installment  thereof, 
due  from  the  taxpayer  at  the  time  of  the  discovery  of  the  over- 
payment for  the  prior  year,  and  any  balance  of  such  excess  is 
to  be  refunded  to  the  taxpayer. 

111.  Will  any  information  contained  in  my  personal  return  be  dis- 

closed to  another? 

No.  The  law  specifically  provides  that  any  information  rel- 
ative to  an  individual's  income  and  deductions  obtained  from 
his  personal  return,  or  otherwise,  in  connection  with  the  in- 
come tax,  shall  be  inviolably  confidential,  and  it  is  unlawful 
for  any  employee  of  the  United  States  to  divulge  or  make 
known  such  information  in  any  manner  whatsoever  to  any  per- 
son, except  the  proper  officers  and  employees  of  the  Treasury 
Department  or  to  the  proper  officers  of  a  court  for  use  in  a 
trial  of  any  case  to  which  both  the  United  States  and  the  per- 
son rendering  the  return  are  parties;  and  any  offense  against 
this  provision  of  law  will  be  held  to  be  a  misdemeanor  and  be 
punishable  by  a  fine  not  exceeding  $1,000,  or  imprisonment  not 
exceeding  one  year,  or  both,  at  the  discretion  of  the  court,  and 
dismissal  from  the  service  of  the  Government. 

112.  If  my  attorney  requests  a  copy  of  my  return  or  any  information 

relative  thereto,  will  his  request  be  granted  ? 

No ;  unless  the  return  was  rendered  by  him  for  and  in  your 
behalf,  or  he  submits  an  authorization,  personally  signed  by 
you,  permitting  the  copy  or  information  to  be  given  to  him. 


INDEX. 


A.                                                                Question. 
Accounting,  inventory  basis ft; 


receipts  and   disbursements 27 

system  required l(M» 

Accounting  period,  change  of 11,12 

Agent,  returns  filed  by 17. 112 

Allowances 105 

Assessments,    income  tax 106,109 

capital  stock (»4 

irrigation  company 70 

Automobile,  repairs  upon <il 

B. 

Blank  forms,  where  obtainable 20 

Building  and  loan  associations,  dividends  on  stock 45 

C. 

Change  from  calendar  year  to  fiscal  year  basis 11,12 

Claims  for  excess  taxes  paid : ]<)!) 


Computation  of  income 2 


— 


Contributions  to  charitable  organizations 94 

Cooperative  associations 49,  50 

Credits,    allowable 101 

for  excess  payment  of  tax 110 

Crop  rentals,   income  from ;;1 

not  deductible  expense  of  tenant 65 

D. 

Debts,  bad  or  worthless  charged  off 86,  87.  88 

collection  of  bad,  charged  off 51 

payment   by    sttrety 89 

Deductions,  from  gross  income 54 

gifts  to  charitable  organizations 94 

items  not  deductible 55 

ordinary  and  necessary  expenses 56 

taxes  paid  by   tenant 63 

worthless  debts     86,87,88 

Depletion,   allowance   for 93 

Depreciation,    allowance    for !H 

defined 90 

live  stock !>•_>.  '.lit 

Dividends,  exempt  from  normal  tax mi 

from  cooperative  associations 49,  SO 

Dues,  social  club r>!i 

E. 

Exchange,  of  property 38 

of  produce  for  merchandise 39 

Exemption,   personal    X.  4,  5,  •', 

return  of  exempt    income '-'  1 

Expenses,  crop   rental   paid   to   landlord    65 

hired  help  66,67 

improvements 78 

ordinary  and  necessary 56 

payment  of  damage  claims 71 

Extension,  of  time  when  granted 16 

26 


26  INDEX. 

F.  Question. 

Farmer,  term  defined 1 

Fiscal  year,  defined 9 

returns  on  basis  of 11 

Forms,   where  obtainable 20 

G. 

Gifts,  receipt  of  exempt.         -■', 

to  charitable  organizations 94 

Gross  income,   computation  of 27 

deductions    from 54 

defiued , 26 

farming 28,  29,  80 

items   not  deductible 55 

H. 

"Head  of  family."  defined 7 

Hired  help 66,67 

I. 

Improvements,    permanent 50,57.  58,  59 

Income,  exempt  from  tax 23 

gross,  defined 26 

net,  defined 22 

other  than  money „ 46 

Insurance,   deductible  premiums 60 

receipt  of,  on  cattle  killed 52 

Interest,  credited  on  bank  deposits 48 

paid  on  indebtedness 74 

received   on  Liberty   Bonds 25 

received  on  notes i 47 

Inventory,  basis  of  reporting  income 95 

cost  or  market  price  as  basis '.»T 

items  to  be  included (.m; 

L. 

Liberty  bonds,  interest  on 23,25 

shrinkage  in  value  of 85 

Losses,  allowable  deductions 77 

crop 7s 

fire  and  lightning 81,83 

in  operating  run-down  farm 80 

live  stock  raised  on  farm 82,98 

sale  of  property 79,84 

shrinkage  in  value  of  Liberty  bonds sr. 

M. 

Minor  children    wages  earned  i>y 1 41 

wages  paid  to,  i>y  taxpayer t>7 

N. 

Ne1    income,    defined   22 

Notes  given  in  payment  of  supplies <">H 

P. 

Payments,  of  income  tax 106,  107.  10s 

overpayments,    credit    for 110 

Penalties,  delinquency  In  payment  <>f  tax 107,109 

disclosure  of  information  on   returns 111 

failure  to  file  return  on  time 15 

Pensions,  subject  to  tax 43 


IKDEX.  27 

It.  Question. 

Rates  of  tax 21 

Rentals,  improvements  on  leased  property 40 

Rents,  deductible  by  tenanl  as  expense  63 

Returns,  blanks  where  obtainable   120 

change  of  accounting  period       —                                  11 

date    Cor    lilin.L.' 14 

disclosure  of  information  contained  in  111,112 

extension  of  rime  for  filing __       16 

made   by    sigenl -    17 

of  husband  and  wife           _.                     18,19 

penalties  for  delinquencies  in  filing 15 

period  covered         10 

place   for   Qling 13 

when    required 2.  14 

Returns  of  information,  forms  for .   L03 

payments  to  be  accounted  for _ KM 

required    102 

salary    and    allowances 105 

s. 

Salary,  amounts  to  lie  accounted  for 105 

compensation   other   than  money 46 

Sales  of   property 32,  33.  34,  35,  36,  37 

Surtax * 21 

T. 

Tax,    rales   of 21 

Taxable  year,  defined 8 

change  to  fiscal  year 11 

Taxes,   deductible To 

income  payments  not  deductible 76 

on    bank   stock 44 


o 


Cfcxulord  - — rP 

PAMPHLET  BINDER 

^Z^  Syracuse,  N.  Y. 
— —   Stockton,  Calif. 


UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 


■ 


AA      000  222  286 


